How
to Protect Equity in Your Home from Your Unemployment
(February 18th,
2008)
 You
get the official pink slip, your employer tells you they are laying
you off because business is slow. An example is the layoff of
more than 5000 employees by CitiGroup due to dismal financial
results in 4th quarter of 2007. Citigroup wrote down $18.1 billion
of sub prime mortgages in in the fourth quarter and had no choice
to but lay off thousands of workers. What will happen to these
workers and their mortgages/homes? Two classes of people will
emerge from this incident:
i) Those workers who saved up money in an emergency
fund, just when a rainy day such as this arrives.
ii) Those workers who had no saved up money
because they spent it all.
If you have an emergency fund, good for you!
The other workers may turn to their home equity lines of credit
to get some urgent cash. Others will refinance their mortgages
in order to get a cash payment. Unfortunately, the banks do not
like to lend money to those people who NEED it, they like to lend
to those people who WANT it but could live without it. This means
the banks will be hesitant to lend money to people who just lost
their jobs, because they face a risk. These workers may not be
able to repay their loans because they do not have a steady job/income.
Before the day they officially lost their jobs,
these workers would have been able to go to the banks and refinance
their mortgages and get a cash payment through their home equity
loans. This is because the banks cannot foreshadow these workers
losing their jobs. But today unfortunately, these workers will
get denied for their home equity lines of credit. Thus the lesson
of this article is, how do you prepare for such an emergency?
i) Set up a home equity line of credit when
you have a steady income every month, just so you can get a cash
out payment if you do lose your job. Many banks will be willing
to pre-approve you for a home equity loan if you have steady income
every month, have built equity in your home and have a good credit
score.
ii) Save for an emergency fund such that in
case you lose your job, you have money set aside to make the mortgage
payments and finance your current standard of living.
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